Optimising Your Insurance Outcome: The Importance of Understanding Your Strata Property
By Georgiana Loader
When it comes time to begin the insurance renewal process for Residential and Commercial Strata Policies, as your broker, we will request specific information (COPE) to help ensure we disclose the necessary information to insurers we approach.
- Construction materials; external walls (including cladding), subfloor, roofing
- Occupancy; commercial tenants, holiday letting/Airbnb
- Protection
- Exposure
This information is used by insurers to determine how and if they can provide insurance terms. It is important for us as the brokers, and for our clients to disclose all information to help achieve optimal insurance results and ensure all risks are adequately covered in the event of a claim.
Having a complete COPE report will allow us to approach the most appropriate insurers who will help provide terms without adding to insurer and proposal delays.
This article outlines the key COPE requirements and why it is important for us to have this information before approaching insurers on your behalf.
Construction Materials
Construction materials include the external walls, foundations/subfloor, and roofing. This information is important because different materials can pose certain risks. Buildings constructed from bricks/concrete/tiles are considered low or ‘vanilla’ risks, and they are generally straight forward risk for insurers. Other materials, however, pose greater risks. These materials are most commonly on and in the exterior walls and include Asbestos, EPS, ACP, and products noted as ‘rendered lightweight/cladding’.
EXPANDED POLYSTYRENE (EPS)
EPS is a construction material that can be used as cladding on buildings. Often resembling materials such as steel and concrete (typically rendered with cement), EPS is classified as a B3 product, meaning it is highly flammable or ‘easily ignited’. This type of cladding is combustible and it may shrink, melt, or ignite when exposed to elevated temperatures. There are many insurers who have a certain amount of EPS within their appetite, and will decline to quote if the percentage of EPS used exceeds their limit. Other insurers may be willing to quote, however will be imposing a large Fire Excess on buildings containing this type of cladding. Amounts of 15% and less are more likely to return terms from insurers than a building with 70% cladding coverage. Therefore, it is important for us to investigate a little more when Cladding/Lightweight render is disclosed.
We see many Owners’ Corporations (OC) that receive notices from their local council, building authorities and fire engineers [SP3] that will advise on the cladding risk and their recommendations for enhancing safety (e.g., extra fire protections with sprinklers and alarms, or cladding removal).
ALUMINIUM COMPOSITE CLADDING (ACP)
ACP consists of two thin Aluminium sheets with a non-aluminium core that can be used as a construction material on buildings. This core can be highly flammable and combustible. Like EPS, if there is a fire in the building, having ACP can increase the likelihood of the fire spreading and causing severe damage. There are different types of cores for ACP, which is why insurers will ask for a description of the core’s colour when we are unable to determine the exact brand/type.
DEFECTS
Defects are faults or flaws in a building’s construction that can result in ongoing claims and issues for the OC. Examples can include incorrect plumbing works, cracking exteriors/walls/concrete, and failure of roof coverings, etc. Not all these issues are a direct result of building defects and may have another cause, which is why it is important to have defects assessed by an engineer. Generally, these issues are only noticed after claims are lodged and assessor’s reports are conducted to identify the cause of damages. Through these engineers’ reports, the OC is notified of the steps needed to minimise and rectify these defects. Having ongoing/unresolved defects can result in further claims and damages to the property, and many insurers will turn away from quoting. However, insurers may consider quoting if the OC can demonstrate it is actively taking steps toward rectification.
Occupancy
COMMERCIAL TENANTS
Commercial strata complexes are properties with at least 20% occupancy by commercial tenants. Residential strata may still have commercial tenants, regardless, we and insurers will need to know specifics about the commercial units. Different commercial tenants pose varying risks that may or may not appeal to insurers. These risks can vary from fire risks, cooking risks, liability risks, and the potential risk of claims.
Some higher risk tenants include;
- Restaurants/catering kitchens with fire risks – deep fryers
- Churches/Temples/Mosques with fire risks (e.g., candles), high replacement value (priceless/valuable artifacts, or stained-glass windows), heritage builds, and risk of malicious damage, vandalism and break ins
- Manufacturers who can carry/use/produce hazardous materials such as flammable liquids, spray paint booths, plastics fabrication/forming
- Storage units that can hold further hazardous materials, flammable materials (liquids, timber, paper files), or potentially personal storage as we are unable to fully determine the contents
- Industrial tenants; some insurers will shy away from industrial tenants as they are usually zoned together because of the high fire risks
- Short Stay/Airbnb; Short stay tenants can pose a risk for damage due to high turnover and foot traffic.
Insurers will rate policies based on the commercial tenants, meaning if a higher-risk tenant were to move into the complex, the risk will also increase (and possibly premiums). However, if a high-risk tenant were to move out a lower-risk tenant moved in (office, café with low fire risk, hairdresser, retail/clothing shops) we can potentially have the terms rerated.
Protection and Exposure
Protection factors are safety measures that protect the OC. These factors can be used as risk management against other exposures and may include:
- Fire safety measures; sprinklers, alarms, extinguishers, no cladding in hallways, entries, and exits
- Increased security; CCTV, effective locks, site managers/security
- Proper maintenance of property; rectifying damages, proper hygiene
Exposure factors are risks at a property that expose the OC. These factors can relate to construction, commercial tenants, location, and proximity. These can include:
- Location of the property in a higher-risk flood area
- Neighbouring properties are provided with some space separations
- Nature of tenants/business activity and clientele
Protection and Exposure factors are used to help us assess the risks associated with properties. For example, if a building were to have a percentage of EPS (Exposure), insurers will also query the fire safety measures (Protection) at the property.
Finding COPE information about your OC’s properties
Valuations can be an excellent resource for finding COPE information as most valuators will disclose the construction materials, year of build (an estimate), number of units and levels, and photos of the property as well. Unfortunately, for valuations, the building materials are also only an estimate when it comes to cladding and asbestos, as they are not fully accessible or observable from the outside of a fully constructed building. If ‘Lightweight sheeting/cladding/materials’ or ‘decorative cladding’ are disclosed on the valuation, we will need to investigate further as the exact material and percentage is the information the insurers will need in order to quote.
Builders’ Plans and Drawings allow us to properly assess and estimate the building materials. These plans will have the materials listed in an index table and where exactly they are used in construction. This is an especially useful resource for determining how much EPS and/or ACP is present in the building, as well as the brand/type. By having a more detailed review of the building construction using plans, we are able to explain specifically to insurers the risks involved.
Defect/Engineers Reports are used when it is believed there are problems with the property build. These issues generally result in claims being made by the OC and in turn, insurers will be less willing to provide terms. We use defect reports to determine if there are in fact any defects, what is required by the OC to keep the property in good condition, and which rectifications must be made. Insurers will be concerned about reoccurring claims as they may represent a trend.
Speaking with the OC will allow us to gain a greater understanding of the property and commercial tenants as they occupy the property. When there are changes in commercial tenants, they are generally the best point of contact to advise who is now occupying which unit, and the type of business they are operating. As different commercial activities carry varying risks, it is important we and the insurers have up to date information about the tenants. Some nigher risk commercial activities include tattoo parlours, restaurants with cooking/fire risks, churches/temples/mosques.
Asbestos reports will determine the quality, location, and friability of asbestos within properties. If asbestos is disclosed without a report, insurers are likely to decline terms. Friable Asbestos is a type that will dry, or because of a work process, may be crumbled, pulverised or reduced to a powder by hand pressure which can release the spores into the air.
If you are ever unsure about how to obtain certain information, please contact your account manager and we can advise on the appropriate steps to take.
Georgiana Loader | Service Executive
Honan
